Transcript: Nightly Business Report — June 9, 2015

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Stuck in neutral. With its stock going nowhere, General Motors (NYSE:GM) faces pressure not just from shareholders, but from rivals — perhaps also, the Justice Department.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: The next blockbuster. The FDA reviews a new class of cholesterol drugs that hold big promise, but could come at a big price.

MATHISEN: Unprecedented plan. The government wants to ease student loan debt for some Americans. But will it help solve the $1.2 trillion problem?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June 9th.

EPPERSON: Good evening, everyone. I’m Sharon Epperson, in tonight for Sue Herera.

MATHISEN: And I’m Tyler Mathisen. Welcome, everybody.

We begin this evening with that nation’s largest automaker, General Motors (NYSE:GM), and the pressure it’s facing now from both shareholders and competitors.

CEO Mary Barra hosted the company’s annual shareholder meeting today at a time when the CEO of Fiat Chrysler is reportedly turning up the heat on G.M. to merge with it, and as reports surface about possible criminal charges against the automaker stemming from those defective ignition switches. Investors are also looking for answers about the stock, which has basically been stuck in neutral for the past year or more.

After the shareholder meeting, General Motors (NYSE:GM) stock rose fractionally today as you see there.

Phil LeBeau has the details.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: GM CEO Mary Barra meeting with shareholders in Detroit says the country’s largest automaker is on track to deliver better returns and better sales despite a turbulent year. Much of that surrounds how GM handled the recall of defective ignition switches. There are reports the Department of Justice may ramp up its criminal investigation by the end of this summer. Barra says GM is cooperating with that investigation, but anything else in terms of timing or potential finds is all speculation.

There’s also no update or increase to charges related to the recall. Barra says the focus right now is returning capital to investors. Some of those investors are now being courted by Fiat Chrysler CEO Sergio Marchionne. Today, a report said Marchionne has reached out to hedge funds with stakes in GM to press his case for a merger of GM and Fiat Chrysler.

It’s a move Barra and the GM board have so far dismissed.

MARY BARRA, GM CEO: We have scaled. We have leveraged the appropriate opportunities where we can benefit from co-development. We — that’s something we’ve been doing for several years. And so, when I look at it, the focus that I have is truly on the General Motors (NYSE:GM) shareholders and making sure we execute our plan.

LEBEAU: Despite those moves, shares of General Motors (NYSE:GM) are up just 1 percent this year. Fiat Chrysler’s stock is up 32 percent over the same time period.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

EPPERSON: And David Whiston joins us now to talk more about GM and whether or not he thinks the deal is the answer for GM stock. He is the senior auto equity strategist at Morningstar (NASDAQ:MORN).

David, thanks for joining us.

DAVID WHISTON, MORNINGSTAR SENIOR AUTO EQUITY STRATEGIST: Good evening.

EPPERSON: We talked about this merger potentially between Fiat Chrysler and GM. The stock has been stuck. Will this help move it?

WHISTON: GM stock? Honestly, I don’t think so, because there’s just so much skepticism as to would any kind of auto alliance work out, let alone something of this size? And GM’s history not only with Fiat is extremely checkered and ugly, but things such as the joint venture in Fremont, California, and most recently with Peugeot, Saab, Suzuki. There’s just not a lot of good history there at all. So, I don’t think that necessarily that market would welcome this merger.

MATHISEN: Does the talk of it give the stock a short-term boost? Just a buzz.

WHISTON: I’m sorry, can you say that again?

MATHISEN: Can just the buzz, the talk of a possible merger, give the stock a little bit of juice?

WHISTON: Well, without GM tying up with FCA, which I don’t think they need to do at all, frankly. GM does not need them at all. I think FCA needs GM far more than the other way around.

GM has got a great turnaround plan in place. They’ve got the size, they just never had the economies of scale as they should, but they’re moving towards that and that target of GM North America op margins next year, I think that’s conservative.

EPPERSON: But we’ve seen the work that activist investors can do when they work with the company, and there’s talk that hedge funds and activists investors may be in fact working with Fiat Chrysler to kind of push this forward. Do you hear any talk about that and what impact can that have on this possibility?

WHISTON: Well, obviously, I think we at this point, we’ve all seen that “Wall Street Journal” story breaking about how Sergio Marchionne is trying to recruit some activist hedge funds unto his side. So far, though, I haven’t heard about anyone taking him up on his offer.

And GM just had their own battle with four hedge funds led by David Tepper’s Appaloosa and Harry Wilson, the former auto task force member, and that resulted in a very crystal clear capital allocation announced on March 9th that I like a lot and also entails buying back at least $5 billion of GM stock before the end of this year.

So, I think GM is already doing plenty to return cash to shareholders and drive some shareholder value. You just have to be a bit more patient.

MATHISEN: So you’d buy the stock?

WHISTON: It’s the best idea for our department here at Morningstar (NASDAQ:MORN). The $50 per value estimate, I like GM a lot. But again, it is for the longer term investor. There’s a lot of hair, too.

EPPERSON: All right. Good advice for long-term investors there.

David Whiston, thank you so much with Morningstar (NASDAQ:MORN).

MATHISEN: From drama at General Motors (NYSE:GM) to possible drama at Netflix (NASDAQ:NFLX), the company is hosting its annual shareholder meeting and buzz is all about a potential massive 30-to-1 stock split. Shares are currently trading at $647 a share and they have soared almost 90 percent this year. Shareholders are being asked to approve a vastly expanded reserve of capital stock which could potentially pave the way for a split as big as 30-to-1.

Well, Tesla is also hosting its annual shareholder meeting and investors are looking for reassurance that the company is on track to hit several milestones, including the launch of the model X later this summer. Shareholders are also expected to ask about Tesla’s strategy in China, whether its growth targets can be achieved and where production stands on that gigafactory battery place. Shares of Tesla fell slightly to close at $256.

EPPERSON: Tyler, on Wall Street, the S&P 500 snapped its three-day losing streak, but not by much. The Dow Jones industrial average and the NASDAQ headed in the other direction. By the close of trading, the blue chip Dow index fell two points to 17,764. The NASDAQ dropped seven, and the S&P 500 gained less than a point. Investors were still keeping a close watch on the bond market which bond yields move to their highest levels in eight months. And West Texas Crude settled up 3 percent on expectations of a drop in stockpiles.

MATHISEN: Inventories held by wholesale inventories increased in April. According to the Commerce Department, whole inventories up by a more than expected, 0.4 percent. That was the strongest advance since January. An increase in inventories can be seen as an indication of rising business optimism as companies replenish their shelves in anticipation of stronger demand.

The better than expected number prompted at least one Wall Street firm to raise its estimate, albeit just slightly for second-quarter GDP to 2.9 percent.

EPPERSON: Job openings get a record in April. The Labor Department reports that employers posted more than 5 million openings, the most since it started tracking the number in 2000. The number of people quitting their jobs remain near a seven-year high and a sign that employees feel confident enough to leave one job than another.

MATHISEN: HSBC will cut as many as 50,000 jobs, roughly one in five positions worldwide. The move part of the British bank’s overhaul of its global business. HSBC also plans to sell several underperforming businesses in Brazil and Turkey to cut billions in costs.

EPPERSON: China’s stock market is hot, trading near a seven-year high and many investors had hoped to gain more access to that country, but that might have to wait a little bit longer.

Late today, indexing giant MSCI (NYSE:MSCI) said it expects to include mainland China shares in its emerging market index, only after remaining issues related to market accessibility have been resolved. And this decision comes even as stock investing within China becomes more popular even in rural farm towns.

Eunice Yoon has more.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): They say money doesn’t grow on trees, but apple farmer Liu Jianguo is learning that it does grow in the stock market. From his remote village in western China, Liu invested more than $8,000 into the Shanghai index six months ago, a sizeable portion of his life savings.

“It’s a lot easier to make money from stocks than farm work,” he says, “but it’s risky. You can earn $1,600 in ten minutes and lose it all in the next.”

(on camera): Hundreds here are buying into the Shanghai market for the first time. So much so that the villages have set up a mini stock exchange center so they could monitor their investments minute by minute.

(voice-over): The villagers started plowing their savings into stocks after one heard about the market craze on a visit to a nearby town. He returned and spread the word to farmers here like grocer Wang Li.

“My advice is to follow the country’s economic development and government policies”, she advices, “and read the news every day.” She told me she started with $820 in 2010, and grew her portfolio 40 times over, to more than $33,000. She’s known by the locals as the stock market goddess, obsessively checking quotes of listed companies like Bank of China.

With the Chinese government supportive of stock investing, Liu says he has a bullish long-term view, though he’s still getting used to the highs and lows. He says the farmers now only tend to their fields outside of market hours.

“I’ve made some small profit and gained experience,” he says, “but I feel anxious when my investments aren’t doing well.” Anxious that some day can upset the applecart.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Nanliu Village, Shaanxi Province.

(END VIDEOTAPE)

MATHISEN: And still ahead, why an app a day could keep the doctor away. How one medical center is using mobile technology to keep patients healthy.

(MUSIC)

MATHISEN: Qorvo, an American semiconductor, will replace Lorillard (NYSE:LO) in the S&P 500. The move will happen after the close of trading on June 11th, two days from now. This as Reynolds American (NYSE:RAI) is in the process of acquiring Lorillard (NYSE:LO). That transaction expected to go through June 12th.

EPPERSON: Advisers to the Food and Drug Administration voted in favor of approving a new class of experimental cholesterol-lowering drugs. The drug under review was made by Regeneron, in partisanship with Sanofi. A similar therapy by Amgen (NASDAQ:AMGN) goes before the FDA advisory panel tomorrow.

Meg Tirrell has more on why there’s so much hope behind these new drugs.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Lipitor was once the top-selling drug in the world. It’s part of a class of medicines called statins, which have the ability to drastically lower cholesterol. But statins don’t work for everyone and heart disease thought to be connected to levels of bad cholesterol known as LDL is still the leading cause of deaths worldwide.

PHIL NADEAU, COWEN ANALYST: There’s still a need in the treatment of cholesterol because a good proportion of patients still don’t reach goal with the statin therapy or the other available therapies.

TIRRELL: Cowen analyst Phil Nadeau estimates as many as 15 percent of patients can’t tolerate statins because of side effects like muscle pain, and he says 20 percent don’t get cholesterol levels low enough to keep them from being at high risk of heart attack or stroke. That’s where a new class of cholesterol drugs known as PCSK9 inhibitors may come in. Developed by Amgen (NASDAQ:AMGN) and Regeneron, partnered with Sanofi, they are being reviewed this week by a panel of outside advisers to the FDA.

NADEAU: So far, the drugs have been really clean. They haven’t seen a lot of side effects.

TIRRELL: Moreover, they’ve shown in clinical trials to reduce cholesterol levels by about 40 percent to 60 percent. Coupled with their safety profile, analysts expect both drugs to get approved and draw as much as $5 billion each in peak annual revenue.

One question remains: how much does lowering bad LDL cholesterol translate into improved outcomes like lowering the risk of heart attack or stroke? Those outcome studies are expected to read out in 2017.

NADEAU: We think the use of these will be limited to the most high-risk patients or those patients who can’t tolerate statins, until we get our outcome data.

TIRRELL: Another issue, the medicines called Praluent and Repatha are given by injection unlike statins which are pills. Analysts say that can initially limit use. The drugs are expected to be priced around $10,000 a year, and already pharmacy be managers like Express (NYSE:EXPR) Scripts and CVS (NYSE:CVS) Health have set their sights on their cost. That will likely be the main focus if and when both drugs reach the market expected later this summer.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Imagine going to the doctor and getting a prescription for an app on your smartphone. It isn’t as strange as it sounds and it’s what doctors at Ochsner Health System are doing.

As Bertha Coombs reports, they’re seeing successful results.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): John Hogue was never one to count calories, but mobile devices and health apps are finally helping him get his diet and diabetes under control after years of nagging from his doctor.

JOHN HOGUE: I would go to the doctor and say, yes, sir, and listen to all the good advice and then I would go down the street and have a po’ boy.

COOMBS: But then his cardiologist at Ochsner Health prescribed mobile apps that got loaded on to his phone and now on to his Apple (NASDAQ:AAPL) Watch right at the hospital’s version of a genius bar.

HOGUE: I still struggle with my weight, honestly, but it’s made me more aware of what I’m eating.

COOMBS: None profit Ochsner is trying to harness mobile technology to coax its patients to get healthier.

DR. RICHARD MILANI, OCHSNER HEALTH: There are 100,000 health and wellness apps out on the market. There’s been data to say that as many as 50 percent are not very useful. So, we’d like to be able to feature the ones that we and others have found to be helpful to patients.

COOMBS: The hospital is conducting a trial with patients like Andres Rubiano, using apps and mobile blood pressure cuffs to actively monitor their hypertension.

They’ve also bought the patients’ Apple (NASDAQ:AAPL) Watches to make things like notifications about medications more immediate.

ANDRES RUBIANO, PATIENT: Seeing what the medication was and seeing the picture of it kind of helped me remember which one I was supposed to take.

COOMBS: Early results have been encouraging.

MILANI: We’re seeing at the end of 60 days, over 60 percent of our patients are getting under control, and that’s in a very short period of time.

COOMBS: It’s a much more interactive model of patient care, which requires constant monitoring of the data they generate on their devices and constant contact on the phone. It may seem intrusive to some, but patients in the program say it works for them.

RUBIANO: I love it. My gosh, I definitely want them to know what’s going on with my blood pressure, for sure. I mean, it’d be different if they were listening to my phone calls, but this is for my own good.

COOMBS: As John Hogue puts it, he feels like he’s getting a real support network now.

Bertha Coombs, NIGHTLY BUSINESS REPORT, New Orleans.

(END VIDEOTAPE)

EPPERSON: Signs of weakness from American Airlines and Southwest is where we begin tonight’s “Market Focus”.

American lowered its second quarter forecast while Southwest announced limits on added seats citing weak economic growth. This comes just a day after Delta and United revised outlooks to the down side. Still, shares of American Airlines rose 1 percent to $40.33, but Southwest fell 4 percent to $34.59.

Lululemon out with earnings that beat on both the top and bottom lines. Quarterly profit more than doubled and on that, the yoga wear retailer raised its revenue guidance for the year. Shares rose about 11 percent to $68.27.

And an ugly report from Hovnanian. The home builder posted a quarterly loss that was wider than expected, as the company was hurt by weaker earnings — by weaker margins. The CEO says he expects the firm will post a loss for the year. Shares fell almost 10 percent to $2.86.

MATHISEN: Well, General Electric (NYSE:GE) will sell its private equity lending unit to Canada’s largest pension fund about $12 billion, the price tag there. The move is a major step towards the industrial company’s retreat from banking. Shares were up a fraction today at $27.33.

Meanwhile, Campbell Soup (NYSE:CPB (NYSE:CPF)) is spicing things up with its purchase of salsa maker Garden Fresh Gourmet. The $230 million buy is part of a strategy to diversify beyond canned foods and get into the fresh and organic business. Shares were a fraction higher today at Campbell. That’s good. It closed at $46.57.

Burlington Stores reporting same-store sales that were well below estimates, blaming increased store closures, harsh winter weather. The off-price retailer also announcing plans to raise the minimum wage for its employees with six months or more of service to $9 an hour. Shares, though, didn’t like, off 8 1/2 percent to $49.35.

Etsy’s backer, Tiger Global Management, hiked its stake in the firm to about 9 percent. The move invigorated interest in the online craft marketplace. And shares popped today by a very nice 7 1/2 percent to $15.99.

EPPERSON: The Obama administration wants to forgive the student debt of tens of thousands of students who attended the now bankrupt Corinthian Colleges (NASDAQ:COCO). But the program doesn’t end with Corinthians. It could expand to debt relief for a much larger number of students.

(BEGIN VIDEOTAPE)

EPPERSON (voice-over): The secretary of education announcing a massive federal loan forgiveness program for borrowers who can show they were lured to colleges by fraudulent recruiting. The plan is designed to aid former students of Corinthian Colleges (NASDAQ:COCO), once one of the largest for-profit education companies in the U.S., it closed its doors and filed for bankruptcy last month, after federal officials accused the chain of lying to prospective students about graduate success in finding jobs.

LAUREN ASHER, TICAS’ PROJECT ON STUDENT DEBT: It’s good news that the department has recognized that students who were defrauded by Corinthian and other schools need to have their loans discharged and are committed to setting up a process that hopefully will be quick and fair for doing that.

EPPERSON: The U.S. Education Department says loan forgiveness could extend far beyond the 350,000 Corinthian students who applied for and received debt relief over the past five years. The cost of erasing that debt alone could be as much $3.5 billion. The price tag could be much higher since under the new plan, any loans directed by the federal government could be forgiven, as long the borrower can show they were defrauded by the college under state law.

But that could be difficult to prove, especially when it comes to colleges reported job placement success.

JEFFREY D. MAPES, ATTORNEY: Schools do this all the time. Where do we draw the line between advertisement and puffery and fraud? I think it’s going to be a stretch to say that there is actually fraud involved here.

EPPERSON: The Education Department said a so-called special master will be appointed in a few weeks to create procedures for borrowers to apply for debt relief.

ASHER: We would like to see them able to do that in a more streamlined fashion and particularly where there’s already clear government evidence fraud that they shouldn’t have to jump through any hoops.

EPPERSON: Education officials say the goal is to identify fraudulent practices at schools, hold them accountable for their actions, and ensure borrowers get the debt relief they’re entitled to.

But at this point, some say the emerging plan may not do much.

MAPES: It seems too vague. Procedurally, it would be unworkable and frankly, I just don’t think it’s going to help the people that actually need the help.

(END VIDEOTAPE)

EPPERSON: Critics also say the new federal loan forgiveness plan sets a bad precedent of putting taxpayers on the hook for the fraudulent actions of some colleges. But, Tyler, some advocacy groups say the plan could have gone further to provide blanket relief to defrauded borrowers.

MATHISEN: Well, Sharon, coming up, states spend billions trying to attract businesses, but do the incentives pay off or are they a waste of taxpayer money?

(MUSIC)

EPPERSON: Here’s what to watch tomorrow:

Weekly mortgage applications are out. We’ll see how last week’s rise in interest rates impacted homebuyers.

Los Angeles will hold a final vote on increasing its minimum wage to $15 an hour. Amazon (NASDAQ:AMZN) will have its annual shareholder meeting and that’s what to watch Wednesday.

MATHISEN: Well, some tense moments in the nation’s capital today. This afternoon, the White House press office was evacuated during a briefing. A bomb threat was called in and the Secret Service cleared the room, searched it and determined it was safe. The briefing room was the only room evacuated within the White House. The security scare came just a short time after capitol police received a bomb threat that forced the evacuation of a TSA-related hearing on the Hill.

And Intel (NASDAQ:INTC) announcing plans today to back start-ups with women and minorities in leadership roles. The chipmaker’s venture capital arm is pledging $125 million over the next few years to bring more management diversity to its start-up portfolio.

CEO Brian Krzanich says staying diverse is important to the future of Intel (NASDAQ:INTC).

(BEGIN VIDEO CLIP)

BRIAN KRZANICH, INTEL CEO: We have example after example that when you have a diverse workforce, and if you think about something like a wearable. You can’t go into the wearables industry where you’re going to be on every kind of person that makes up the population and say you’re only going to have one segment of the population make that product, and it’s going to fit the needs of all those other people.

(END VIDEO CLIP)

MATHISEN: The move comes as tech companies face heavy criticism for overwhelmingly male and white workforces.

EPPERSON: Tyler, a big victory for New Jersey Governor Chris Christie today. The state’s highest court ruling that he can cut more than $1.5 billion from state pension funding, giving some temporary financial relief. New Jersey’s pension system faces a funding shortfall of more than $37 billion, and it makes annual contributions to the fund at one of the lowest levels among states.

MATHISEN: A primary weapon in the war between the states for jobs is incentives, tax breaks, subsidies. But do they work?

Scott Cohn has a look at some of the top states for subsidies and why some say the whole thing has gotten out of hand.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When aluminum giant Alcoa (NYSE:AA) was looking to save money in New York state in 2007, it turned to the state’s power authority and scored big, $5.6 billion in electricity discounts over 30 years — the largest single state business subsidy in U.S. history.

The governor at the time, Eliot Spitzer, took credit for saving hundreds of jobs. Not only is Spitzer long gone, so are some of those jobs.

And this year, with Alcoa (NYSE:AA) talking about even more cuts, Governor Andrew Cuomo agreed to sweeten the electricity deal.

One watchdog group, Good Jobs First, says it’s a prime example of throwing good money after bad.

GREG LEROY, GOOD JOBS FIRST: A lot of the electricity has been devoted to companies that were there a long time ago, energy intensive companies, chemical and metallurgical companies, they just want to use a lot of cheap electricity.

COHN: The Alcoa (NYSE:AA) deal helps put New York at the top of Good Job First list of top subsidies, followed by Washington state, which has given massive tax breaks to Boeing (NYSE:BA) than Louisiana, Michigan and Kentucky. In all, states are giving away $70 billion a year.

LEROY: That amount of money could have plugged significant state deficits during the recession. It could be keeping classroom sizes lower, it can be facing infrastructure that benefits all employers.

COHN: But the founder of Tesla, whose company received a 10-year $1.3 billion deal to build a battery plant in Nevada, says the incentives get a bad rap. Elon Musk says the plant creates thousand of jobs and the tax breaks help the process.

ELON MUSK, CO-FOUNDER AND CEO, TESLA MOTORS: What the incentives do is they are catalyst. They improve the rate at which a certain thing happens.

COHN (on camera): Companies like Tesla have growing bargaining power. That’s because the number of corporate still down from the recession and they’re offering more subsidies. That’s more money facing fewer deals. The companies have the states right where they want them.

For NIGHTLY BUSINESS REPORT, I’m Scott Cohn.

(END VIDEOTAPE)

EPPERSON: And finally tonight, Bankrate is out with its list of best cities to retire and if you’re picturing Florida, it didn’t even make the top five. The third best was Prescott, Arizona. Arlington and Alexandria, Virginia, ranked at number two, and best city, the Phoenix metro area in Arizona, including Mesa and Scottsdale. The ranking was based on cost of living, weather, crime rate, healthcare quality and walkability among other factors.

And you know which one was the worst, came in the last place?

MATHISEN: No.

EPPERSON: New York City.

MATHISEN: New York City?

EPPERSON: New York City, the expenses, taxes.

MATHISEN: Why? Apart from the expense, I think New York is a great place to retire. But Arlington, Virginia, my hometown —

EPPERSON: Yes.

MATHISEN: — number two.

EPPERSON: That might be where you’re headed.

All right. Well, that’s NIGHTLY BUSINESS REPORT for tonight. I’m Sharon Epperson. Thanks for watching.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody, and we hope to see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2015 CNBC, Inc.

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